Holidays Help UPS Beat Forecasts

Published 8:00 pm, Monday, January 28, 2002

A surge of holiday shipping helped United Parcel Service Inc. beat Wall Street forecasts, but net income still dropped 11 percent as the U.S. recession battered business, the company said Tuesday.

UPS said fourth-quarter net income was $645 million, or 57 cents a share _ 7 cents more than the consensus forecast of analysts surveyed by Thomson Financial/First Call. The results included $37 million from taxpayers as part of the Sept. 11 bailout package from Congress to help the nation's airlines.

In the same period last year, UPS earned $724 million or 63 cents per share.

Atlanta-based UPS, the world's largest freight shipper, said its modest gain in overall fourth-quarter revenue was also helped by international growth, which came despite the U.S. recession and related global slowdown.

Quarterly revenue was up 2 percent to $8.1 billion from $7.9 billion for the same period a year earlier.

"Our cost controls remained highly effective and served to mitigate the effects of the U.S. slowdown, even as we continued to effectively position UPS for the coming economic rebound," UPS chief financial officer Scott Davis said.

He said UPS was able to cut costs without layoffs or reductions in benefits.

"UPS has surprised people the way they can manage their business, whether in good times or in bad times," said Rick Black, an analyst with Blaylock and Partners L.P. "They've found ways to reduce costs in their system."

The peak holiday season started slowly for the shipper but accelerated as Christmas neared, boosted by gains in e-commerce shipping. UPS deliveries on the busiest day of the season, Dec. 18, topped 19 million, the company said.

"It's just good to see there's still life in e-commerce and that customers are making use of that," Davis said, although he couldn't provide specific numbers on how much holiday business was generated by Internet sales.

UPS's international export volume grew 8 percent in the fourth quarter, led by a 15 percent gain in European exports.

However, the company's fourth-quarter results showed a moderate decline in total average package volume, which dropped 0.5 percent to 14.7 million packages per day but still exceeded the company's expectations.

U.S. package revenues were $6.2 billion during the fourth quarter, down 1.7 percent compared with the previous year. International revenues were $1.1 billion, up 3 percent, while non-package revenues totaled $746 million, up 54.8 percent, reflecting the contributions of several acquisitions.

For the year, UPS had net income of $2.4 billion, down 18 percent from $2.9 billion in 2000.

Revenue for the year showed a 3 percent gain, to $30.6 billion from $29.7 billion.

"2001 was a tough year for us, but we felt we were pretty responsible in reacting to it," Davis said in a conference call with analysts.

Davis said he expected earnings would dip for the first quarter of 2002, typically the slowest time of year for shippers. UPS expects to earn 40 cents to 47 cents per share for the first quarter.

That is below the 48 cents per share consensus estimate of Thomson Financial/First Call. In the first quarter of 2001, the company earned 51 cents per share.

"I would say that we're still cautious, and we don't think we're out of the woods just yet," Davis said. "But it does have a feeling that we're at the bottom of this."

Also concerning investors is the lack of growth in UPS's ground business while competitor FedEx's ground division continues to show "healthy" growth, said analyst Donald Broughton of A.G. Edwards and Sons Inc.

UPS shares fell 70 cents to close at $56.40 Tuesday on the New York Stock Exchange.